Macau casinos roll a pair of hot IPOs

Two Vegas-based companies, Wynn Resorts and Las Vegas Sands, get a boost from a big comeback in China's gambling capital

NEW YORK (Fortune) -- In recession-battered Las Vegas, there is still plenty of elbow room at the craps tables. Not so in Macau. Gambling revenue in the Chinese region soared in
September, according to figures released this week, and two hotly anticipated stock offerings show that the high rollers have returned.

That's good news for two U.S.-based casino operators. Although Wynn Resorts (WYNN) and Las Vegas
Sands (LVS) are both based in Las Vegas, they generate only one-third of their revenue from the
Strip. The rest comes from casinos they operate in Macau -- and both are planning IPOs of their Macau subsidiaries.

This week Wynn priced its offering at the high end of its anticipated range, raising $1.6 billion. The shares are expected to begin trading on the Hang Seng index Oct 9. The Sands is also
preparing for a public listing of its Macau subsidiary. It filed an application with the Hang Seng stock exchange on Aug. 20. (A Sands spokesman declined to comment on the proposed
offering. Wynn did not return a call seeking comment.)

Until recently, Macau had struggled just like other gaming towns in the wake of the global financial meltdown. But unlike the problems in Las Vegas, much of Macau's troubles were of its
own making.

Back in 2008, before all the air was out of the financial balloon, the Chinese government imposed restrictions that prevented its citizens from traveling to Macau more than once every
three months, a move designed to tamp down growth that threatened to overwhelm the area's infrastructure.

Now that an overheating economy is no longer a threat, the government has relaxed those restrictions to one visit a month. As a result, the gambling business in Macau is booming again.
This week's revenue report suggests gaming business in the region was up 53% in September, the third straight month of gains.

The rebound in Macau couldn't come soon enough for the Las Vegas Sands and its dynamic CEO Sheldon Adelson. He had taken the Sands to the brink of bankruptcy by piling the company with
debt to finance new projects, making the company vulnerable to the recession, but now stands to win big.

With the sale of roughly 20% of its Macau subsidiary, which analysts say could raise from $1 billion to $2 billion, the Sands would have enough cash to restart lucrative projects,
including two hotels on Macau's Cotai Strip. To boost its liquidity in the meantime, the Sands last month sold $600 million of bonds exchangeable into shares of its Macau subsidiary. It
also amended a $3.3 billion credit agreement to lift some requirements.

The Sands owns the Venetian and Palazzo hotel-casinos in Las Vegas as well as the Sands Macau and the Venetian Macau.

By contrast, Adelson's rival Steve Wynn already has the cash to complete a $700 million hotel in Macau that's scheduled to open in mid 2010. But in terms of market share, Wynn, with a 14%
stake in Macau, trails the Sands, which has a 20% stake there. MGM (MGM, Fortune 500) is also a player but at a much smaller level. The market leader is
Macau mogul Stanley Ho.

"Wynn has greater near-term growth prospects, but the Sands has greater long-term growth prospects," says Soleil Securities analyst Jake Fuller. In gambling parlance, the stakes are
higher for Sands, but Wynn is more of a sure bet.

With Las Vegas still in the doldrums, both companies are banking on a recovery in Macau, the only place in China where gambling is legal, to pull them out of their slump. After hitting a
low in March of $15.40, Wynn's Nasdaq-traded shares are up threefold to $65.60, partly as a result of its prospects in Macau. The Sands shares, which trade on the New York Stock Exchange,
have also rebounded from a low of $1.42 to trade at $15.45.

Although the U.S. travel business has started to show some signs of life and vacationers are beginning to return to the Las Vegas Strip, the convention business, where Las Vegas hotels
make most of their money, is off 26% this year, according to the Las Vegas Convention and Visitors Authority.

To make matters worse, MGM Mirage is preparing to open CityCenter Resort and Casino in December, which will add 5,900 rooms to an already overcrowded market. What happens in Vegas may
stay in Vegas, but for casino operators, the real action is in Macau.